The history and administration of Arkansas property taxes
By Eddie A. Jones, AAC Consultant
Arthur Godfrey, the American radio and television broadcaster and entertainer, once said something like this, “I’m proud to be paying taxes. The only thing is — I could be just as proud for half the money.” But Oliver Wendell Holmes, Jr., an early 20th-century Supreme Court jurist, said what most any level-headed person would think and say, “Taxes are what we pay for civilized society.”
Surveys find that the “property tax” is the most hated of all taxes. Why is it, detractors say, that you have to keep paying the government on something that you own — forever? Or, in the words of one protester on YouTube, property tax is “oxymoronic, unjust, and un-American!”
On that last point, he’s onto something, at least on a literal level: The origins of the property tax aren’t American at all. It, instead, has roots that date back to Europe’s feudal system. First instituted in England by William the Conqueror in 1066, the early tax system worked this way: A king (or conqueror) took over all the land in a given territory. He would then divide it among his lieutenants and supporters, who would pay him (with money or services) in order to keep that land. In return, landholders enjoyed the king’s protection and were able to rent the property out to others who would live and work the land for a fee. The punishment for nonpayment was forfeiture of the land. At the time, this system was called “free and common socage.” The person who held the land was called a socman, his taxes — socage. The arrangement created a way for people to own land while still having to remain loyal to the crown, which also had rights to the land.
After expansion across the Atlantic started, King James made sure that this system traveled overseas with the first settlers at Jamestown, so he could partake in the profits of exploration of the new land. The charter of the Virginia Company held that, as in feudal times, the king would protect the lands in Jamestown, and in return, the people living on the land would pay him a share of their profits.
When the colonists revolted and property owners no longer had a king to answer to, the new American government had to figure out who actually owned the land. It was decided that the government would step into the role the king once held. The Northwest Ordinance established that the federal government owned all the lands, and the state served as the “donor,” which essentially meant the person who collected the fees from the tenants. After the Northwest Ordinance, when land was sold to an individual, the state had the right to collect payment from that individual in perpetuity. This was a system very similar to free and common socage called “fee simple.” That basic principle, and terminology, persists today: Anyone buying a house will notice the term “fee simple” in their legal documents stating that they own the land and property, which is still subject to taxes.
It’s a peculiar note of history that the founding fathers, who spoke often of abolishing the feudal system, kept this remnant of the Old World. But the rationale is very simple: They needed the money. In fact, the federal government levied a national property tax in 1798, 1814, 1815, 1816, and 1861. These taxes usually outraged residents, who would often revolt, but the system of collecting property tax remained. That’s because property taxes were locally collected and spent, and often paid for things like roads that property owners would be able to see, and that increased the value of their property. Sound familiar?
Property taxes in the United States, as we know them, originated during colonial times after the American Revolutionary War. By 1796, state and local governments in 14 of the 15 states taxed land. Delaware did not tax property, but rather the income from it. Arkansas, of course, did not exist as a state yet.
During the period from 1796 until the Civil War, a unifying principle developed: “the taxation of all property, movable and immovable, visible and invisible, or real and personal at one uniform rate.” During this period, property taxes came to be assessed based on value. This was introduced as a requirement in many state constitutions such as the Arkansas Constitution of 1874.
After the Civil War, intangible property, including corporate stock, took on far greater importance. Taxing jurisdictions found it difficult to find and tax this sort of property. This trend led to the introduction of alternatives to the property tax, such as income and sales taxes, at the state level. Property taxes remained a major source of government revenue below the state level.
Various economic factors have led to taxpayer initiatives in various states to limit property tax. In 1978 Proposition 13 amended the California Constitution to limit aggregate property taxes to 1 percent of the “full cash value of property.” It also limited the increase in assessed value of real property to an inflation factor that was limited to 2 percent per year.
Arkansas has some of that type history, too. First, in the late 1960s and into the 1970s when the courts ruled that Arkansas assessors were not assessing property in accordance with constitutional law, counties were ordered to properly, and on a continual basis, assess real and personal property according to its market value. State legislation was enacted to reinforce constitutional law and to establish a uniform assessment procedure for counties to follow.
Since property had, for many years, been assessed below value the reappraisal of property was going to increase property taxes in Arkansas immensely in that first statewide, court-ordered reappraisal. That is when Arkansas Constitution, Amendment 59 was passed in the general election of 1980 to repeal in part and add to Arkansas Constitution, Article 16.
This amendment provided, among other things, a procedure for the adjustment of taxes after the reappraisal of property that we refer to as a millage adjustment or rollback. This procedure is used for the first year that reappraisal values are applied to the tax books to make sure the newly reassessed property values produce tax revenues no greater than 10 percent above the revenues received during the previous year.
The rollback procedure caused major millage reductions after the first court-ordered, state-wide reappraisal. In my home county, the county general millage was rolled back from the maximum 5 mills to 1.6 mills. The county road millage was reduced from the maximum 3 mills to 1 mill.
Secondly, Arkansas experienced a man by the name of Oscar Stilley, a former Fort Smith attorney, who repeatedly tried to get an initiative on the ballot that would completely abolish property taxes in Arkansas and make it almost impossible to increase any tax or fee without a vote of the people. It actually made the ballot for the 1998 General Election.
It was a scary time for any involved in government operations. But less than a month before the election, when polls showed the proposition headed for passage, the Arkansas Supreme Court struck the proposition from the ballot. The court said its supporters had used improper procedures, including forgery, to gather signatures. Stilley said they would be back for the 2000 election.
That’s when all concerned parties — the state, counties, municipalities, school districts and others — got busy. We knew we had to protect the property tax for local government and school operations. The state of Arkansas also realized that without property taxes more state revenues would have to be expended for schools and local governments, which meant increasing state taxes. But even those would have to be approved by the electorate under Stilley’s proposal.
The result of our collaboration is Amendment 79, which passed by a 60 percent to 32 percent margin. This amendment limited the increase in the assessed value of a taxpayer’s real property after a countywide reappraisal and provided a property tax credit on homestead property. The credit is funded with a ½-cent state sales tax.
After the passage and implementation of Amendment 79, the past 20 years have been void of any serious attempt to abolish property taxes in Arkansas. Property tax is a crucial source of revenue for local government entities.
The property tax system is administered at the county level. The federal government no longer levies a property tax. Neither does the state of Arkansas. They did in years past, but Amendment 47 was passed in the General Election of 1958 and succinctly says, “No ad-valorem tax shall be levied upon property by the State.”
Real and personal property is defined in Title 26 [§ 26-1-101] as all tangible owned real estate that is fixed and not readily movable. This includes land and all structures and improvements made to that land, such as buildings, homes (including mobile homes) and barns.
As with real property, personal property is subject to ownership and is tangible. Previously in Arkansas, we paid personal property taxes on many more personal property items than we do now. Items of household furniture and furnishings, clothing, appliances and other personal property used within a home were exempted from personal property tax by Amendment 71, which was adopted in the 1992 General Election. Examples of taxable personal property today include: (1) vehicles; (2) boats; (3) motorcycles; (4) recreational vehicles; (5) livestock; and (6) farm machinery.
Each year, in accordance with § 26-26-1408, every Arkansas taxpayer must report taxable personal property to the county assessor for assessment of ad valorem taxes between Jan. 1 and May 31. While some personal property, such as vehicles, can be tracked because they must be registered, other personal property is difficult to track. The assessor in many cases must depend on the honesty of the taxpayer. That’s right, to some degree, the personal property tax system in Arkansas works on the “honor system”.
The assessed value of real property is calculated as 20 percent of the true market value in most cases. The exception is that agricultural land is assessed based on use value rather than market value.
Real property in Arkansas goes through regular reappraisal. Each county must reappraise all real property every three or five years, depending on growth between appraisals [Arkansas Code Annotated § 26-26-1902]. County-wide reappraisals of real property will be completed no later than July 1 of the year in which the county-wide reappraisal is scheduled to be completed.
Assessed value of personal property is 20 percent of the usual selling price at the time of the assessment. That is accomplished by assessors using industry tools/publications that track personal property values.
Cities, counties and school districts levy taxes on both real and personal property. Property taxes are based on mills. Most millage levies must be approved by voters before taxes can be levied and collected. However, the county quorum court may approve millage levies for county general and road funds up to the maximum allowed without a vote of the people. City governments may approve millage levies for the city general fund up to the maximum allowed without a vote of the people. But the electors of a county have the legal authority to go through the process of seeking a referendum to repeal any tax levy of the county [Arkansas Constitution, Amendment 7 and A.C.A. 14-14-914].
A mill equals one-thousandth of a dollar (.001). So, 10 mills = .01 and a 40-mill tax rate = .04. A 40-mill property tax means you pay $40 for every $1,000 of assessed value.
There is a maximum constitutional limit on the number of mills that can be levied by cities and counties. There is no maximum limit on the number of mills that can be levied by school districts. However, school districts must levy a minimum 25-mill tax, known as the Uniform Rate of Tax, on real and personal property in accordance with Amendment 74 [A.C.A. § 26-80-101] — the result of the Lakeview School District No. 52 v. Huckabee court case concerning school funding. All school district millage changes must be approved by voters.
Counties can levy up to 21 mills of property tax. They include:
5 mills — County general government [Arkansas Constitution, Article 16, § 9 and A.C.A. § 26-25-101]. Quorum court can levy without a vote of the electorate.
5 mills — County bonded indebtedness [Arkansas Constitution, Amendment 62]. Requires a vote of the electorate.
5 mills — County library maintenance and operation [Amendment 38 as amended by Amendments 72 & 89]. Requires a vote of the electorate to lower, raise or abolish the millage.
3 mills — County library capital improvements and construction [Amendment 38 as amended by Amendments 72 & 89]. Requires a vote of the electorate to lower, raise, or abolish the millage.
3 mills — County roads [Amendment 61 and A.C.A. § 26-79-101]. Quorum court can levy without a vote of the electorate.
Note: Amendment 61 was approved at the general election of 1982. Prior to the enactment of Amendment 61 the road millage was governed by Amendment 3, which required the road millage to be on the ballot at each general election in each county. If it was defeated, and it sometimes was, the counties defeating the issue did not have a county road tax the following year. An additional note concerning the county road millage in Arkansas is that the municipalities get a portion of the county road tax. In accordance with A.C.A. § 26-79-104 one-half of the road tax collected upon property within the corporate limits of any municipality is apportioned to them for use in making and repairing the streets and bridges in the municipality. A few municipalities receive more than one-half of the county road tax due to other specific legislation. That type of legislation can no longer be enacted by the State Legislature due to the passage of Amendment 14, which prohibits local or special acts.
Cities can levy up to 20 mills of property tax, including:
5 mills — City general government. [City Council]
5 mills — City bonded indebtedness.
5 mills — City library maintenance and operation.
3 mills — City library capital improvements and construction.
1 mill — Police pension.
1 mill — Firemen pension.
Note: The City Council may increase or decrease the general millage. All of the other millage rates must be approved by voters.
Tax Process Procedure
The number of mills levied by the city, county and school district will vary from county to county, and even from jurisdiction to jurisdiction within a county. It all depends on the number of mills approved either by voters or, in some cases, approved by the county and municipal governing bodies. Ultimately, the county quorum court levies all of the approved millage rates in a tax levy ordinance enacted in either November or December applicable for the following tax collection year.
How does the taxpayer end up with a certain dollar amount on their property tax statement? Here’s a simplified procedure:
The taxpayer reports personal property between Jan. 1 and May 31 each year and reports real property eligible for the homestead tax credit by Oct. 15 to the county assessor.
The county assessor determines the market value of the property, as required by the Arkansas Constitution, and then multiplies the market value [use value for agricultural, timber and pastureland] by 20 percent to obtain the assessed value of the property. [See Adjustments to Assessed Value for further discussion of assessor duties.]
The taxpayer may challenge their property tax assessment with the equalization board.
The equalization board determines the equitability of assessments, meaning ascertaining that assessments are made using the same standards for everyone in the county. And they hear assessment appeals from taxpayers. Each year the equalization board meets beginning Aug. 1 through Oct. 1. In counties where the assessed value does not reflect true or market value, the board must continue meeting until all assessments are equalized and all requests for adjustment have been considered. However, the board is not to meet later than the third Monday in November [A.C.A. § 26-27-309]. Dates for hearing individual appeal cases are scheduled by the county clerk, or his or her designee, as secretary of the board upon request of a taxpayer/property owner. Requests for appeal must be filed with the secretary of the board by the third Monday in August [A.C.A. §§26-27-307 and 26-27-317]. If the property owner does not agree with the ruling of the equalization board, they may appeal the ruling — first to the County Court, which is the county judge, who has exclusive original jurisdiction in property tax matters [A.C.A. § 14-14-1105(b )(1)]. If the County Court ruling is not satisfactory to the property owner, they can then appeal to the Circuit Court, and then to the Arkansas Supreme Court.
The county clerk or other county official appointed “preparer of the tax books” by the quorum court computes property taxes by multiplying the taxable assessed value by the total millage rate applicable to the taxpayer and provides this information to the county tax collector by Feb. 1 of each year [A.C.A. § 26-28-304]. Although originally the county clerk was the preparer of the tax books in Arkansas, current law authorizes the quorum court to appoint by ordinance either the county clerk, assessor, or county collector as the preparer of the tax books [A.C.A. § 26-28-302].
The county tax collector is required to mail tax statements no later than July 1 each year, although most prepare and mail the statements much sooner. Current taxes from the previous year’s assessments are collected by the county collector each year from the first business day in March through Oct. 15 [A.C.A. § 26-35-501]. Failure to pay current property taxes in full by Oct. 15 results in a 10 percent penalty, plus costs, and collector’s fees added to the tax bill. Taxpayers have the option of paying current taxes in three installments: (1) First installment of at least 25 percent due the third Monday in April; (2) Second installment of at least 25 percent due the third Monday in July; and (3) The final installment of 50 percent or the balance due Oct. 15. A different installment schedule applies to utilities and carriers. The county collector may authorize taxpayers, except utilities and carriers, the option to pay current real and personal property taxes in installments in any amount between the first business day in March and Oct. 15. The collector is required to turn over property tax collections to the county treasurer at a minimum one time each month. The collection settlement is due on the first of each month or within 10 days thereafter [A.C.A. §§ 21-6-310 and 26-39-201]. The county depository board is authorized to require county officials to settle with the county treasurer more frequently than monthly [A.C.A. § 19-8-106(a)(3)].
After receiving the tax settlements from the collector, the county treasurer receipts current taxes to the Collector’s Unapportioned Fund; delinquent real taxes to the Delinquent Real Estate Tax Fund; and delinquent personal taxes to the Delinquent Personal Tax Fund. The treasurer also receives delinquent real settlements from the State Land Commissioner for real estate that has been certified to the state of Arkansas for failure to pay taxes within one year following the date the taxes were due. These tax settlements are credited to the State Land Redemption/Sales Fund. The treasurer distributes property tax revenue to school districts and county and city governments based on the assessed value of property and millage rates in each jurisdiction. Only 90 percent of current taxes are distributed monthly with the balance distributed upon order of the county court approving the final settlement. The 10 percent held in the Unapportioned Fund is used to fund the office operations of the assessor and collector and settle up with the various tax entities at the end of the year [A.C.A. § 26-39-201(b)(2)]. Delinquent tax settlements are distributed in full each month.
Adjustments in the Form of Tax Relief
Amendment 79, which I alluded to earlier, provides for property tax relief by limiting the increase in assessed value for tax purposes as a result of county-wide reappraisal and also delivers a homestead tax credit.
An increase in the assessed value of a homestead is limited to 5 percent for the year following a reappraisal. If the reappraisal results in an increase of more than 5 percent, assessments in subsequent years will be increased by a maximum 5 percent per year until the initial reappraisal assessment is reached. For real property, other than a homestead, assessment increases are capped at 10 percent per year and implemented in similar fashion. These limitations do not apply to newly discovered real property, new construction or increases resulting from substantial improvements to the property.
Starting with the 2019 assessment year collected in 2020, Arkansas taxpayers are eligible for an annual property tax credit up to $375 against the ad valorem property tax on a homestead. The tax credit cannot exceed the total property tax on the homestead, which is the dwelling place used as the property owner’s principal place of residence. Counties give the tax credit to eligible taxpayers and receive reimbursement from the Treasurer of State using the Property Tax Relief Trust Fund [A.C.A. § 26-26-310].
The property tax system in Arkansas is administered by county officials. The Arkansas system is uncommon because property taxes are paid during the year following the year in which taxes are assessed. So, it takes about two years for property to be assessed, equalized, billed and paid. Because of the two-year period required to complete one tax cycle, county officials are continuously processing two different tax years at the same time.
If you’re thinking about moving to a state without property taxes, don’t waste your time looking. All 50 states have property taxes. But that’s where the commonality ends. Tax rates can range from very low in one jurisdiction to astronomically high in another.
Arkansas is listed in the Top 10 Lowest Property Tax States in every survey I have reviewed. In one of the very latest surveys, the Arkansas property tax rate was ninth lowest. But the median real estate taxes paid was third lowest at $743. Only two states had slightly lower median real estate taxes paid — Alabama and West Virginia.
Low tax rates and low home values make Arkansas an affordable state in terms of property taxes. Yet the property tax, even in Arkansas, is the most hated of all taxes.
The assessor and collector are on the front lines and the recipient of unpleasant taxpayers on occasion. My advice to county officials has always been to remain professional and treat even “mad folks” with as much courtesy and respect as possible. Know the law and the property tax process so you will be able to completely explain their tax bill. The Arkansas Constitution dictates that assessments be handled equally across the state, meaning that everyone and their property is treated the same. You don’t do one thing for one person and something different for the next person. Most people want you to do the right thing — to abide by the laws you swore to uphold. Many times, a completely truthful explanation does the job. Thomas Jefferson enunciated the basic principle of public service when he said, “When a man assumes a public trust, he should consider himself as public property.”
I don’t know that I would be quite as forthcoming as an incumbent assessor running for re-election in 2006. That assessor said, “Property owners pay more when they elect a good assessor. Asking you to vote for me is like asking a chicken to vote for Colonel Sanders, but somebody has to do it.”
It seems nobody likes property taxes, but they’ve been around for centuries, and they’re not going anywhere. We just need a better understanding of them and what they pay for, so we won’t be afraid of them. The cartoon character Maxine is everyone’s favorite cranky old lady. I saw a Hallmark Maxine greeting card recently where Maxine was saying, “I really scared the neighbors this year. I dressed up as property tax.”